Hedge Funds Bullish on Dollar Even After Being Hit by Draghi

  • Goldman, Macquarie have cut forecasts on greenback versus euro
  • `There are still a lot of dollar bulls out there': Paamco

Hedge funds are still bullish on the dollar, even after they were stung by Mario Draghi, according to a money manager who invests in the funds.

The European Central Bank president unveiled last week a boost in his stimulus package that fell short of some investors’ expectations, said Sam Diedrich, a director at Pacific Alternative Asset Management Co., which oversees about $9 billion in assets. The dollar fell by the most in 6 1/2 years against the euro after the Dec. 3 meeting. That hurt the funds who had piled on wagers against the single currency, lifting speculative positioning to the highest since May, in anticipation of more aggressive easing from the ECB.

“It did catch a lot of people off guard,” Diedrich, who is based in Irvine, California, said in a telephone interview. “Euro shorts would have been potentially hurt.”

The dollar slid 3 percent to $1.0940 per euro on Dec. 3, its biggest drop since March 2009. The euro traded at $1.0919 at 7:29 a.m. in London Wednesday.

Banks including Goldman Sachs Group Inc. and Macquarie Bank Ltd. lowered their forecasts for the greenback versus the euro this week, predicting that the U.S. currency will need more time to advance to parity.

ECB Disappointment

The ECB’s easing measures, which included a cut to the deposit rate and a six-month extension to the bond-buying program, fell short for some investors who had expected a more aggressive stimulus after Draghi on Nov. 20 said policy makers “will do what we must to raise inflation as quickly as possible.”

Hedge funds and other large speculators boosted bets on dollar gains versus eight major currencies by more than threefold in the week ended Dec. 1, from the period ended Oct. 20, according to the latest data from the Commodity Futures Trading Commission.

The dollar weakened by at least 2 percent last week against the currencies of Australia, Norway, Denmark, Sweden, New Zealand and Switzerland.

Hedge funds are still betting on a stronger dollar as the Federal Reserve prepares to raise interest rates for the first time since 2006, creating a policy divergence with other central banks, Diedrich said. The “economic stress” in many developing economies may also worsen, supporting the greenback against emerging-market currencies, he said.

“There are still a lot of dollar bulls out there,” Diedrich said. “If you have a bad day, it’s not the end of the story because a lot of times, things would bounce back.”

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